Category: Stefan’s Weekly

Sociocultural issues meet economics

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Did you follow my advice and spend every morning 30 to 60 seconds thinking about something positive? If so, what was the effect?

Now, last week I gave you an insight into some of my global sociocultural points of view and proposed to publish an interview with a pension fund manager for this week. The interview was conducted but the time schedule was a bit aggressive and I am not quite ready to publish the interview yet. Hopefully by the end of next week I will be and may deliver on my promise.

I have been receiving very thoughtful and interesting feedback to my last weekly mail and thus today, would like to pick the feedback of two of my readers and share Masha’s and Anton’s thoughts with you.

When thinking of current global economic policies, Masha has a picture in her mind. It is the picture of a curved (concave and convex) mirror. The sort of thing you would see in amusement parks. When you stand in front of it, reality gets distorted. I quite like that metaphor and I totally see her point, only that instead of the mirror we have some of today’s media channels and research reports by banks and brokers.

Anton’s feedback was touching on three points.

Firstly on his statement that uninterrupted growth is not possible, something I would easily agree to, second he cited a quote by Hannah Arendt: “Politics is the professional representation of vested interests”, again I can’t really argue against that one and thirdly he mentioned that we cannot borrow our way to prosperity (how I love that one!) but rather that prosperity requires sacrifices – more specifically, to get something of value tomorrow (including a better life overall) we need to give up something today (time, sleep, money, etc.). This last statement is so true and the ones who know me well, will know that I have a serious problem with today’s culture of “instant gratification”. It just doesn’t work. I always use the same metaphor. If a farmer wants vegetables, he needs to prepare the grounds, saw the seeds and only after a while will see the first signs of germinating plants.

Same is obviously true for investments. People who expect return without giving the investment time to develop, shouldn’t really invest, at least that is what I think.

As always, I encourage you to send me your feedback but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards,
Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Who hinders growth, hinders prosperity

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Long-term investing seen from a slightly different angle that was what my last weekly was all about. I received many questions for pension fund investment pros and am happy that my friend Andy Haeberli, Profond’s CIO, one of Switzerland’s largest collective foundations, agreed to be interviewed by me. I will hopefully be able to do the interview next week and publish it in my next edition of “Stefan’s weekly”.

Today I would like to have a look at what politics can do to help their people to prosper. I am a firm believer of the vision that politicians should primarily act in the public’s interest, however I do get the impression that some of them are primarily acting in their own interest.

First of all I determine that 10 years after the great financial crisis the global economy doesn’t look all that bad. No matter what you hear or see, it is a fact that GDP in most countries is higher and unemployment lower than before the great financial crisis. Total debt on the other side went up massively but so far did not hit economies with high inflation rates as foreseen wrongly by so many (including me).

During and after the great financial crisis, governments and central banks across the globe worked together and made it possible that we didn’t fall into a deep, deep recession followed by hyper-inflation. I believe one of the success factors was the common vision of implementing concentrated and collective action to prevent worse.

What changed in the last roughly two to years? There is this feeling of negativity and that sound of negativity and you know what? I don’t like that sound of negativity! This is the sound of populists to the right and of populists to the left and it can’t be expected to lead to anything positive! Some of those people would like to bring back “the good old days”, why? Because these were the days when children died of influenza or days of no cancer treatment or days of wars in Europe or days of countries without voting rights for women or days of exclusion of minorities, days of apartheid, days of no central heating, etc, this can’t be the goal.

Anyway, I believe that weak politicians take weak decisions and I believe that protectionism represents a risk to global economic prosperity and I believe that we have to settle for cultural and socio-economic adaptation, because not even the most powerful governments and/or central banks can perform well in a socio-economic vacuum and I believe our political leaders and also the general public need to start immediately to detoxify the current public political discourse. This is important because this negativity hinders growth and thus prosperity. It is our responsibility to elect the political leaders that can do the job.

What is your opinion?

Ladies and Gentlemen, please try one thing for yourself and please let me know if it did have an effect on you. Please spend every morning right after getting up 30 to 60 seconds thinking about something positive or about various positive things. As always, I encourage you to send me your feedback but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards,
Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Investing like the ultimative pros

Posted on by Incrementum AG

Dear Ladies and Gentlemen

Many thanks for all the replies I received to my last weekly. I collected some pretty detailed answers and it seems there are some well-informed people among my readers. Thank you very much!

Let me give you a somewhat different perspective on what may signify long-term investing. I am deliberately simplifying wherever possible to make this easy to read..

Now, the biggest challenge in answering my last week’s question seemed to be the definition of “long-term”, which I believe represents one of the most important factors in managing pension fund assets.

One may argue that as a cohort, pension fund managers can probably be considered the ultimate pros, at least that is what they ought to be and a pension fund – by definition – needs to be invested very, very long-term which means pension fund managers need to find and concentrate on very long-term investments.

Here in Liechtenstein, same is true for Switzerland, employees usually follow a three-pillar pension saving scheme. Let me elaborate quickly:

Pillar one is a compulsory and defined benefit pension scheme by the government. Contributions are taken off any salary at any time during an employee’s working life. Employees know exactly what they are getting according to the number of years contributing. Pillar one only covers basic living costs it is capped but also has a floor in order to assure that every citizen, no matter of his/her contribution can rely on a minimal pension income after retirement. Investment risk is born by the government, i.e. tax payer.
Pillar two is in most cases structured as a defined benefit pension scheme. It is compulsory as well, however not organised by the government but rather by employers. Depending on how much an employee can contribute during his/her working life and depending on the investment style and long-term performance of the pension fund manager, the final pension income may vary, and it does – even big time. Investment risk is born by employees (policy holders),
Pillar three is discretionary and may be organised by employees themselves. Up to a certain amount there are tax benefits for contributors.

The by far largest part of pension scheme money is invested in pillar number one and two. This money is being invested globally and at least sometimes in accordance with the latest academic notion of modern investment principals. The investing process is supervised by local authorities/regulators.

So far so good.

If an employee starts working at the age of 20 and works until the age of 65, which is currently the regular retirement age for male employees in Liechtenstein and Switzerland, the employee contributes 45 years of monthly pension fund premiums or “savings”. The savings need to be invested and allocated in a way to keep returns as high as possible and volatility over the entire investment period as low as possible. The investment period is defined by the years any employee contributes, i.e. in our example 45 years plus the years the employee lives after retirement and receives his/her pension income. If a male employee lives until the age of 85, hence the investment period amounts to 45 years plus 20 years and therefore 65 years in total. In our example after retirement and during the last 20 years of the employee’s life, the employee now starts consuming the accumulated returns and savings.

Most of the answers I have received to my last weekly were not taking that sort of ultra long-term investment horizon into consideration. From a behavioural investment point of view this is totally understandable as our mind weighs short-term news and noise higher than long-term considerations. This can be explained psychologically, and research in this field has led to many academic papers and even a Nobel Prize in economics.

However, the quality of a pension fund manager is also (but not only) defined by how strongly he can resist short-term speculation and thus his ability to blank out anything keeping him off the track generating truly tong-term returns for his clients, i.e. pension fund policy holders.

Accordingly, quarterly earnings reports, political turmoil, tweeting politicians and trade wars can not be taken into the equation. A pension fund portfolio needs to be invested in a way that focuses on cash-flow generation over decades. Anything else would be speculation.

Just think about it, a pension fund manager can of course not foresee the future and can neither invest with the current partial U.S. government shut-down, the next financial crisis an equity bull market nor the next recession in mind. The only thing a pension fund manager can do is to use models that calculate potential return needs over the entire investment period taking underlying inflation estimates and development of demographics into the equation and than start to look for investment opportunities that match such return needs, if possible over the entire investment life cycle.

Therefore the positive side of investing really long-term is that pension fund managers don’t really need to consider daily, weekly and quarterly earnings estimates and even micro- and macro-economic comments by analysts. They don’t care about the “longest” U.S. government shut-down because even if it lasts for another few months it is just not long enough to be considered in the investment process. Any equity market crash is only a down-tick on a 65-year chart. Recession-, inflation-, deflation-fears never last 65 years, elected political leaders come and go, regulation and deregulation cycles are shorter than a 65 years investment horizon and thus even trade wars dwindle down to non-events.

Interesting perspective, no?

Now, Ladies and Gentlemen, I will try to find a pension fund manager to discuss my views on pension fund investing and hope to be able to publish a short interview within the upcoming weeks, and I encourage you to send me your feedback as always but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards.
Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

What would you do?

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Just imagine you were managing a multi-billion pension fund with thousands of policy holders expecting you to deliver sufficient returns in order to grant to them a pension that will allow them to pay their bills once will be retired.

What would you do? How would you allocate the money that was entrusted to you?

Ladies and Gentlemen, the largest investors on this planet are pension funds. They invest their policy holders’ money either directly or via mandates. Mandates means the pension funds give the policy holder’s money to banks, brokers, asset managers who then manage parts of the pension funds’ portfolios. Both approaches have their pros and cons but this is not part of today’s weekly.

Now, every month there is new money from pension fund policyholders’ (premiums deducted from salaries) arriving at the pension funds. Furthermore many economies still count growing working populations. This means new workers/employees joining pension funds, which again leads to more money to be managed. This money needs to be invested and it needs to yield a positive return over time. Frankly speaking, this is quite a challenge. In an environment of ultra-low or even negative interest rates, macro-economic uncertainty, and political threats, investors prefer to keep their powder dry before investing. However, eventually a pension fund manager needs to invest as cash on accounts may yield negatively, not to mention inflation, as low as it may be, it should still be that any sort of investment return covers at least underlying inflation.

I personally believe it is always interesting to think about where the largest investors, who not only manage unbelievable amounts of money but on top of that and by definition need to follow a very long-term approach, put their money.

I am curious and this is why I am asking you to let me know how you would invest your policy holders’ money, if you were a pension fund manager. I will consolidate your suggestions/ideas and then let’s see what comes out of it. Maybe we can draw conclusions from this for our own investment style.

Now, Ladies and Gentlemen, I encourage you to send me your concise ideas but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Financial Markets are Indifferent

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen
Welcome to 2019!
May this be a year of good health, interesting encounters and plenty of happy moments for you and your loved ones.

In this first weekly of the year, I would like to take up the issue of last year’s sell-off which occurred during the month of December. I was quite impressed and even more intrigued by what happened and the way it happened.

It was striking to see the media reaction to the sell-off, with comments and vocabulary referring to financial markets almost as if financial markets were humans, a bunch of nasty, mean and hostile guys taking away investor’s money. Quite frankly I believe the sell-off became a self-fulfilling prophecy created by media, financial experts, so-called financial experts and finally the man in the street.

Fact is, financial markets are neither hostile nor friendly they are just indifferent.

Because markets in general (including financial markets) are nothing more than places to exchange goods for goods and/or goods for money during defined times, that’s all. They were actually designed to make life easier for buyers and sellers and therefore with the comfort of humans in mind.

However, most of the market participants on the other side are real human beings  (only most because there are also algo-trading-programs)and as such they are biased, nervous, short tempered, greedy, anxious, happy, educated, uneducated everything you want. Market participants get influenced by noise, media, brokers and many other factors and create hypes and sell-offs. This, as fortunate or unfortunate it may seem (depending on ones perspective or personal positioning), is normal, it’s just the way we – humans – are. It is always interesting to see how quickly we can change from being confident to being anxious and that is not only true when it comes to investments. It is pure psychology and probably dates back to the time when homo erectus started to rover the grounds.

Why would I make a point of this, because I believe that during sell-offs, like the one we have just experienced in December 2018 but also many other sell-offs many times before, there is a mismatch between the fears of crashing financial markets and the real intrinsic risk of failure of the companies whose shares are actually traded on a given financial market (stock exchange).

If you are able to detect such a mismatch and if you have the courage to go against your own fear and step in to buy equities of companies you assessed in the past and considered worthwhile owning and thus always wanted and still want to own anyway, you may get them at interesting prices, possibly enjoying price appreciation over time. Pension funds are typically buying during and after sell-offs. With their very long-term investment horizon they are predestined to buy and hold and while holding, harvesting dividends.

Ladies and Gentlemen, please keep in mind that I can’t foresee the future and that I only try to apply some common sense and that whatever I am sharing with you in my weekly mails reflects my very own personal opinion and please keep on sharing your thoughts and ideas with me. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li
Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards.

Yours truly,

 

Stefan M. Kremeth
Wealth Management
Incrementum AG

Passion and Merry Christmas

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

December was for most of us a rather grim month with markets going down significantly. As I wrote in my previous weekly mails, this is all part of investing and we have to be able to bear the pain, else we may rather not invest at all.

Yesterday, the Fed acted according to their mandate and the major message was that the Fed did not seem to be wanting to react whatsoever to the tweets by President Donald Trump. I personally think this is very confidence inspiring as it may be seen as a clear sign of the U.S. central bank’s independence.

Now, Ladies and Gentlemen, this is my last weekly for the year and I would like to thank all of you, my readers. Thank you very much for all the interesting comments and questions.

You know, reading, looking at markets, investing, discussing scenarios, speaking and writing about all of this is my passion and I will continue doing it also in 2019 and I hope you will stay tuned and keep sending me your feedback!

I wish you all a relaxed and funky Christmas and a prosperous and inspiring 2019 !!

Many thanks for everything and kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Video Interview with Demelza Hays

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

My colleague, Demelza Hays, has been interviewed by Chris Marcus from Stockpulse https://www.stockpulse.com/. I think the interview was well conducted and answers some of the questions in regard to blockchain or crypto currencies. Please feel free to enjoy the video below.

If you are interested in Incrementum’s blockchain and crypto research, please feel free to register yourself under:

https://cryptoresearch.report/downloads/

to receive your free copy of our quarterly research report.

Please do not hesitate to share your thoughts with me on the interview with Demelza or on whatever seems interesting to you or is bothering you. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Winter

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

The SMI is down 7.7% so far this year, the Euro Stoxx 50 is down 13.09% so far this year, the Daxx is down 16.31% so far this year, Gold is down 4.79% so far this year, Silver is down 14.33% so far this year, Brent Crude Oil is down 10.91% so far this year and theses are by far not the worst samples. This looks like winter to me.

Ladies and Gentlemen, often I get asked why I would not mention any of the American indices. The reason for this is that we (for some years already) do not invest in American equities for our private clients and the reason we do not invest in American equities for our private clients is risk management or to some extent lack of trust. Investing always involves a risk management component and while we are fully aware of the fact that without taking risk, we cannot expect return, we still try to manage that risk according to our believes. Now, the U.S. has been acting (and not only very recently) with business partners and governments globally in a not always very trust inspiring way that has on one side been very efficient to the American authorities but on the other side been between difficult and maybe even devastating to some of those other nations and/or business partners around the globe and this is why we are of the opinion that our private clients should have the smallest exposure possible to the risk of changes of laws and/or common practices by the American government, tax authorities, Securities and Exchange Commission, etc. By investing in global enterprises incorporated outside of the U.S. our private clients already take an indirect risk of such changes and to us this is already plenty.

Now, if I use the “farming” metaphor of my last week’s weekly mail, please allow me to stretch it just a little more and add the four seasons into it and if I do that, I think we have approached the end of fall and/or the beginning of winter.

As I mentioned many times before, volatility is nothing unusual, just normal market behaviour and an unpleasant part of investment risk any investor has to live with.

Now, winter is also the time to repair your tools, check your crop, prepare the grounds so that you are ready for the planting/seeding season.

If I convert this thought into portfolio management you want to ask yourself if you still have the portfolio you want/need and if not, you want to take action and make some adjustments. There are good investment opportunities out there, the difficult part is to pick them and to pick them at the right time.

Please do not hesitate to share your thoughts with me on the interview or on whatever seems interesting or bothering to you. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

What we can learn from farming

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Many thanks for your feedback to my last weekly mail. Some of my readers came up with great thoughts and I will most probably use one or the other in future weeklies. I would like to thank especially Madeleine, Thomas, Robert, Scott and Anton for their inspiring reflections. Many thanks!

As some of you know, I live on a small hill in the country side of Zürich and when I look out of the window, I see cows and horses and only a few houses. Seeing farmers at work is part of every day life up here and talking to them from time to time made me think about investment processes.

Nowadays, most of us living in developed countries are used to instant gratification. People are posting pictures of their food and hope to receive likes, they are posting pictures of their cars and hope to receive likes, they are posting comments on Twitter and hope to receive likes. Instant gratification. You want a coffee, you get it immediately, you want something to eat, you get it right away, a new I-phone you get it, whatever we want we can get most of it at any moment. Instant gratification.

However, when it comes to investing, instant gratification is not all that easy to achieve.

Investing needs a strategy and it needs time, patience.

I think investing is actually a lot like farming. Before investing my clients’ money, I have to prepare the grounds. Ground preparing in my business is for example research and research is very time consuming and at times even boring and it is ongoing, it never stops but it needs to be done.

After preparing the grounds I sow the seeds, which means I make some first investments.  Afterwards I nourish and cater for the investments, I add positions or let go of some. When I think the time is right, I harvest, I take profits, rake in dividends or write calls (covered only) on long positions to increase to cashflow on the portfolio.

I am fully aware that a storm can take away a part of my clients’ harvest, this is why I am only on very, very rare occasions fully invested. Like this I always have some cash at hand to increase positions when markets are down.

That is what I am doing, not more and not less, and I keep on doing this over and over and over and over again.

And you know, Ladies and Gentlemen, I don’t think much of preparing and building up protection for this one and only very bad mega storm, almost hoping for it to arrive so that my protection works and (not to forget) my ego gets pampered. I think the opportunity cost of such a (rather risky) strategy is very high. Partial protection on the other side makes a lot of sense to me and I would highly recommend that in any sort of balanced portfolio.

Please do not hesitate to share your thoughts with me on whatever seems interesting  to you or on whatever is bothering you. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards.

Yours truly,

 

Stefan M. Kremeth
Wealth Management
Incrementum AG

Moralizing and Polarizing News Flow

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

This is a slightly more intense weekly than usual and I recommend you only read it if you really are up for it and can spare a moment to think about it.

You know, Ladies and Gentlemen, I ask myself if I am the only one or if there are others out there, who like me seem to have detected an unhealthy development of black or white thinking and/or black or white reporting on just about any important and even unimportant topic in politics and/or financial markets and many other things.

I do get the impression we are constantly being pulled or pushed into one or the other camp, black or white, by influencers of any sort moralizing and polarizing with at times very week arguments.

I really can’t think much of this and it bothers me big time. I don’t think moralizing and polarizing; black or white thinking is helping the knowledge building process of voters and financial investors in any positive way. Why can’t we accept different shades of grey or even colours and have a debate on viewpoints without having to fiercely defend the moralizing and polarizing viewpoints of pseudo gurus?

Is it really impossible to see something (anything really) good in a political candidate, who’s face, style, political program you dislike? Is it really impossible to see something (anything really) good in an asset class you generally dislike? Isn’t it the mix that proposes the best results?

Look, Ladies and Gentlemen, in a very simplified illustration what would you think if a cook was only offering dishes with one ingredient? Don’t you think this would be slightly boring over time and that he would maybe soon be out of business? While and thanks to a mix of ingredients he may were to achieve balanced and interesting menus?

Same is obviously true for politics. I personally think President Donald Trump is not a very elegant person, however I cannot imagine that everything he does is bad. The new Italian government does not want to stick to agreements signed with the EU by their predecessors long time ago, true and yet, there are arguments I understand even if I don’t like them.

Now, when it comes to financial markets, the sometimes-fierce fight between defenders of one or the other asset class is truly surprising as it leads to more restrictions instead of more freedom and flexibility. Why would someone be happy to give up freedom or flexibility?

You know, Ladies and Gentlemen, this phenomenon you can also find in religion and while we finally seem to understand that religion was man made, we almost seem to seek restrictions outside religion. Again, this is very surprising to me as it makes our thinking and acting more rigid and thus fragile instead of flexible and antifragile.

What is your opinion, Ladies and Gentlemen?

Please do not hesitate to share your thoughts with me on whatever seems interesting or bothering to you. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG